Correlation Between Retail Estates and Constellation Energy

Can any of the company-specific risk be diversified away by investing in both Retail Estates and Constellation Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Retail Estates and Constellation Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Retail Estates NV and Constellation Energy, you can compare the effects of market volatilities on Retail Estates and Constellation Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Retail Estates with a short position of Constellation Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Retail Estates and Constellation Energy.

Diversification Opportunities for Retail Estates and Constellation Energy

-0.66

Correlation Coefficient

Retail Estates  Constellation Energy

Excellent diversification

The 3 months correlation between Retail and Constellation is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Retail Estates NV and Constellation Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Energy and Retail Estates is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Retail Estates NV are associated (or correlated) with Constellation Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Energy has no effect on the direction of Retail Estates i.e., Retail Estates and Constellation Energy go up and down completely randomly.

Pair Corralation between Retail Estates and Constellation Energy

Assuming the 90 days horizon Retail Estates is expected to generate 1.6 times less return on investment than Constellation Energy. But when comparing it to its historical volatility, Retail Estates NV is 5.25 times less risky than Constellation Energy. It trades about 0.02 of its potential returns per unit of risk. Constellation Energy is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  21,760  in Constellation Energy on December 24, 2024 and sell it today you would lose (1,665) from holding Constellation Energy or give up 7.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Retail Estates NV  vs.  Constellation Energy

Retail Estates NV

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Retail Estates NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Retail Estates is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Constellation Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Constellation Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Constellation Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Retail Estates and Constellation Energy

The main advantage of trading using opposite Retail Estates and Constellation Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Retail Estates position performs unexpectedly, Constellation Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Constellation Energy will offset losses from the drop in Constellation Energy's long position.

The idea behind Retail Estates NV and Constellation Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.